Energy prices: conclusion

Electricity

Some general conclusions can be drawn in terms of electricity:

1. In every country, governments intervene in order to reduce the electricity
cost for some categories of large industrial consumers. These interventions
occur on two components: transport (Germany and the Netherlands) and
most importantly taxes, levies and certificate schemes (Belgium, UK,
Germany, France and the Netherlands). Given the low market prices, the
French intervention on commodity prices (ARENH) has become irrelevant.

2. Commodity cost plays a very important role: Dutch, French and most of all
German consumers are clearly in a more competitive starting position than
Belgium. This competitive advantage finds its origin in a lower electricity
market price.

3. In terms of overall competitiveness, all countries under review (except for
the UK) can offer lower prices than the three Belgian regions for the four
consumer profiles, but in case of Germany and France this is only true for
(sometimes very) electro-intensive consumers. Prices in Belgium for very
large baseload consumers (profile E4) are comparatively more competitive
than for smaller consumers such as E1.

4. The United Kingdom is an outlier on the high side for total electricity prices
for all profiles under review. This is partly – but not entirely - explained by
significantly higher commodity prices, and to a lesser extent by network
costs and taxes, levies and certificate schemes.

Gas

As far as natural gas is concerned, some general conclusions can be presented as
well:

1. Commodity costs make up a very important part of the gas bill, and their
relative importance is higher than for electricity.

2. Price convergence on the commodity market in Belgium, the UK, Northern
France, Germany and the Netherlands makes for relatively small differences
between the zones under review (except for southern France). For this
specific period (January 2016) commodity cost in Belgium is slightly lower
than for all other countries under review. Differences in commodity prices
are in any case small compared to electricity.

3. For industrial consumers not using gas as a raw material, whether they are
large or very large consumers, the Flemish and Walloon regions offer the
most competitive total prices. For very large feedstock consumers using gas
as a raw material, the competitive advantage of Belgian gas consumers is less
important than for other gas consumers, with the Netherlands even offering
a slightly lower price. For both consumer profiles the competitive advantage
of Belgium is based on a competitive commodity cost, low network costs,
and a comparatively low level of taxes and levies.

Competitiveness score

To interpret the Belgian situation in terms of energy cost for industry, we present
a competitiveness scorecard that does an effort to summarize the complex and
nuanced situation that we have described throughout this report. We address the
question whether, based on the consumer profiles provided by the CREG and on the
assumptions that we set out earlier on, the energy cost for industrial consumers in
Belgium/Flanders/Wallonia/Brussels is competitive when compared to the
neighbouring countries (and the price zones within those countries). In section 3.1
of this report, this analysis will be elaborated based on macro-economic data.

For all electricity consumption profiles, only one neighbouring country is certainly
less competitive than Belgium: the United Kingdom. Similarly, for all consumption
profiles and in all cases, the Netherlands are more competitive than Belgium.

The grey zone represents the complexity of electricity cost for industrial consumers.
In Germany and France, for instance, consumers that do not qualify for electrointensity criteria are worse off than their Belgian counterparts. However, for electrointensive consumers benefiting from the existing reductions and exemptions,
Germany, France and the Netherlands offer electricity cost that are consistently 15
to 40% lower than in Belgium.

The differences between the Flemish and Walloon regions is most important for
profiles E1 and E2 where electricity cost observed in the Walloon region is about 10%
above the cost observed in the Flemish region. This difference is reflected in the
competitiveness score (the Netherlands and France are certainly less expensive than
the Walloon region), and can be solely attributed to regional taxes, levies and
certificate schemes. For profiles E3 and E4, the picture is much more nuanced, with
a small 2% difference between both regions and the Walloon region being more
competitive for E3, while the Flemish region is more competitive for E4.

In terms of industrial gas consumers, the situation depicted by the competitiveness
scorecard is very different. For profile G1, the three Belgian regions are more
competitive than all other zones/regions under review. For profile G2, the situation
is slightly more nuanced. When considering both the top range prices (no feedstock)
and the low range prices (feedstock) separately, the Belgian regions are more
competitive than the other zones/regions. The grey zones in the competitiveness
scorecard reflect the uncertainty that is linked to possible reductions that can be
obtained based on economic parameters in neighbouring countries.

The competitiveness scorecard in Figure 33 is a good attempt to summarize the
general picture in terms of competitiveness of electricity and gas prices in Belgium
and its regions vis à vis its neighbouring countries, but it hides some of its complexity
regarding to the competitiveness of electricity prices. As was shown in section 7 of
this report, some industrial consumers in the neighbouring countries benefit from
considerably lower prices because of reductions based on electro-intensity criteria.
This is not the case in Belgium, where reductions are largely based on consumption
only.

Therefore, it makes sense to present a competitiveness scorecard comparing
electricity and gas prices in Belgium and its regions with those of consumers that
benefit from reductions (electro-intensive consumers) and those that do not (nonelectro-intensive consumers) in the neighbouring coutnries. They are presented in Figure 34 and Figure 35 respectively.